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spk10: Ladies and gentlemen, thank you for participating in the fourth quarter 2021 earnings conference call of Melco Resorts and Entertainment Limited. At this time, all participants are in listen-only mode. After the call, we will conduct a question and answer session. Today's conference is being recorded. I would now like to turn the call over to Ms. Ginny Kim, Senior Vice President, Group Treasurer of Melco Resorts and Entertainment Limited. Please go ahead.
spk00: Thank you. Thank you everyone for joining us today for our fourth quarter 2021 earnings call. On the call are Lawrence Ho, Jeff Davis, Evan Winkler, and our property presidents in Macau, Manila, and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under the safe harbor provision of federal securities laws. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. A definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our investor relations website. With that, I'll now turn it over to Mr. Ho.
spk09: Thank you, Jeannie. Our results in the fourth quarter continue to reflect COVID-19-related disruption and their impact on travel and customer visitation. That said, volumes across all segments in Macau increased in the fourth quarter of 2021 compared to the third quarter, despite structural changes in the VIP segment. Group property EBITDA also showed meaningful sequential improvement this quarter, which demonstrates our disciplined cost controls. Going into 2022, the COVID flare-up in Zhuhai led to softer performance in the pre-CNY period. However, volumes across our segment increased year-over-year during the Chinese New Year holiday period, and this carried over into the week following the holidays. Premium direct business at City of Dreams Macau more than doubled compared to the Chinese New Year period in 2021 and continued to outperform into the following week. Mass table drop also demonstrated strength, increasing around 20% compared to CNY 2021. In the Philippines, we recorded the strongest quarterly EBITDA performance since COVID-19, thanks to a full quarter of casino operations with capacity restrictions. Going into 2022, The authorities reopened the Philippine border for fully vaccinated international tourists effective on February 10th. And Metro Manila is operating under Alert Level 1 from March 1st. Consequently, our venues can now operate at 100% capacity, and it is the first time COD Manila can operate at full capacity since March 2020. Turning to Cypress. Our casinos remained open throughout the fourth quarter of 2021, and we saw sequential growth in EBITDA, along with an increase in gaming spend per patron. Gaming volumes in the fourth quarter reached 90% of pre-COVID levels, and we are hopeful for further normalization going into 2022. We remain committed to our global CapEx and development program. In Macau, We continue our efforts to complete construction of Studio City Phase 2 by a deadline set in the land concession of December 27, 2022. For Phase 2, we recently announced a partnership with Marriott International to bring the W Hotel brand to one of our two new hotel towers. The W Macau at Studio City will have 557 keys and further enhance the Studio City's premium mass offerings. In Europe, the construction of City of Dreams Mediterranean is on track for opening in the second half of 2022. Finally, I would like to thank the Macau government for the opportunity to contribute our views during the public consultation process and for providing a clear framework for the new gaming law. We are committed to participating in the upcoming public tender and we remain fully confident that Melco can remain a key contributor to Macau's growth and diversification in the years to come. Our enthusiasm for Melco's medium and long-term growth prospects remains unchanged, and we are ready to welcome our guests once travel restrictions normalize. With that, I turn the call over to Jeff to go through some of the numbers.
spk05: Thanks, Lawrence. In the fourth quarter of 2021, we reported group-wide property EBITDA of approximately 94 million. The increase in EBITDA was largely due to tight cost control measures, including bonus reversals. Luck-adjusted property EBITDA came in at 120 million, and each of our geographies in Macau, Manila, and Cyprus reported sequential improvements in EBITDA. An unfavorable VIP win rate negatively affected EBITDA at COD Macau Studio City and COD Manila by approximately $26 million in total. $22 million of this was in relation to COD Macau. Details of these adjustments can be found in the supplementary earnings slides posted on our investor relations website. At the end of December 2021, we had approximately $1.7 billion of consolidated cash on hand. Our available liquidity including cash and undrawn revolving credit facilities at the end of December was 3.2 billion to provide more clarity on our capital structure. Melco excluding its operations at studio city, the Philippines and Cyprus had cash of around 850 million in gross debt of 4.5 billion at the end of December, 2021 in February, we announced equity and bond offerings at Studio City, raising a total of $650 million, $300 million via private placement of equity, and $350 million via senior secured notes. Based on our latest forecasts, our CapEx plan for Studio City Phase 2 is now fully funded with a meaningful buffer to support Studio City's liquidity requirements going forward. As we normally do, we'll give you some guidance on non-operating line items for the upcoming first quarter of 2022. Total depreciation and amortization expense is expected to be approximately 145 million. Corporate expense is expected to come in at approximately 20 million and consolidated net interest expense is expected to be approximately 90 to 95 million. which includes finance leased interest of 7 million relating to City of Dreams Manila and 10 to 12 million of capitalized interest. That concludes our prepared remarks. Operator, back to you for the Q&A.
spk10: Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, you can press the pound or hash key. Please note there might be a slight pause as we collate the questions. Once again, it is star one to ask a question. We have the first question coming from the line of Joe Gart from JP Morgan. Please go ahead.
spk06: Good morning, or good afternoon, everybody. Good evening. Lawrence, Jeff, the City of Dreams came in nicely ahead on margins. In the fourth quarter in Macau, hold adjusted $71 million. Is there anything one time in there? I know you have referenced the reversal bonus at debt provision. To what extent did that aid to that $71 million?
spk09: Hey, Jeff, do you want to take that? Hey, Jeff.
spk05: Yeah, thanks, Lawrence. So in total, we had $34 million of bonus reversals in the quarter. And our bad debt provision was a credit to expense of 11 million.
spk06: And how much of that hit at the, at the property level at city of dreams Macau?
spk05: Um, so at city of dreams Macau, uh, the reversals were approximately, uh, 12 million. And, uh, The credit against expense for City of Dreams on the bad debt provision was about $3 million.
spk06: And so if we look at it then sort of outside of the benefit of those two things, it's $56 million. Is that the run rate that you're seeing in the first two months of this year at that property?
spk05: Well... I'm not sure we want to comment on first quarter results, and obviously we have some noise with Chinese New Year and, of course, the weakness that we saw in between New Year and Chinese New Year as a result of some COVID flare-ups. But other than the amounts that I described, that's a solid run rate.
spk06: Thank you. Great. And this probably is a question or topic you don't get much, but what is the future of Altera? It's probably never going to contribute a ton in terms of EBITDA in a normalized environment, and maybe that's not a fair comment on my part. But the asset value is certainly something that's not reflecting the equity. How do you think about utilizing that asset to drive incremental equity value? What's the future of that property?
spk09: Well, Kiel, as you know, last year we transitioned Altera from a, and we did it early, you know, I think before the entire VIP and junket industry imploded. And so we moved Altera to a premium mass focused property. You know, I think I agree with you. With the current visitation into the entire Macau, it really doesn't, you know, I think many properties, not just Altera, doesn't really justify being there. But we do think that with COVID normalizing, hopefully, within the calendar year 2022, and Macau gets closer to the traditional visitation that we will get, Altura has a niche positioning. David, do you want to share some details?
spk01: Sure. Thanks, Lawrence. Look, Altera, as we've transitioned away from being a VIP-centric property and being more mass and premium mass-focused, it's taking some time, but we're starting to get more traction now with that. Altera, although a small property, it certainly has a lot of unique features to it. I think one of the cool things we just had happen with Altera was during the the fireworks display over Chinese New Year. We saw occupancy pick up over there in a big way. We saw a lot more covers. We saw a drop going up in a meaningful way as well. So while it's here as small, it does have a unique place, I think, in the market. And I think with our strategy of kind of converting more and more to mass over there, I think we will see, while it may not be as large as it once was, I think we will see a nice EBITDA pick up over there as we head into the future here more. and we get out of COVID.
spk06: Great, thank you. And then Jeff, can you remind us CAPEX for this year?
spk05: Sure, Joe. So CAPEX for 2022 is about $765 million. About $650 of that is related to Project CAPEX for COD Mediterranean and Studio City Phase II.
spk06: Thank you, guys.
spk10: Thank you. We have our next question. This is coming from the line of George Choi from Citi. Please go ahead.
spk02: Thank you very much. Congrats on the great results. Just one question for me. In light of the revision of the gaming law, what is your plan for your select casino, Grand Dragon? And I guess more importantly for Studio City, I guess most of us would never call it a satellite casino, but do you think the government would look at it any differently? Thank you.
spk09: Hey, George. It's Lawrence. So I think we've never looked at Studio City as a satellite casino, considering local resorts own the majority of the ownership of Studio City. And we believe that the gaming law revision also doesn't see Studio City as a satellite casino. You know, of course, as part of the, you know, the gaming law has been, you know, so far a expedited, fair, and reasonable process. But, you know, we are still seeking a lot of clarification from the government before the law gets approved in the legislative council sometime in June. So we'll be working with the government on that front. And Jeff, I know, you know, are there more details you want to share?
spk05: Well, other than the differentiation in equity ownership, Lawrence, just as a reminder, you know, there is a three-year runway on this issue from the time that the gaming law is implemented. And I think it's also very important to note that the Studio City structure has been explicitly approved by the Macau government.
spk09: And, George, on your question, you know, unlike some of the other operators, we only have the one satellite casino, which is Grand Dragon, and the reason we kept that was really for the MoCA venue there. So I guess we'll continue to work with the government to see, you know, What's the solution for all of this? Thank you.
spk02: That's a very good question. Thank you.
spk10: Thank you. We have the next question. This is coming from the line of Ricardo Chinchilla from Deutsche Bank. Please go ahead.
spk08: Hey guys, thanks for taking my question. I was wondering if you could provide some color on your direct VIP strategy going forward, and if you have seen improved interest or incremental sign-ups given the whole situation with junkets.
spk09: Why don't I hand it off to David later on, but in terms of our direct VIP strategy, We're very proud of the fact that, you know, similar to the fact that we pioneered the premium mass segment, we were one of the early adopters of the direct premium VIP strategy. And, you know, I think to this day we are still the market leader on that front. So we were very early on in terms of predicting the future of the market with regards to premium mass and also premium direct and really owning our database. You know, David, you want to share more information?
spk01: Sure. So I think one of the great things that we've been able to do with our IM team is we've been, over the last few years, we've really been working really hard to grow our premium direct business. But also we started early on trying to attract more of our VIP players that were coming from the junkets into our premium direct program. So we saw a lot of that. So this transition has actually worked out fairly well for us as we've gotten out of the VIP junket business and and really have more and more, as we continue to see, more and more growth in our premium direct business. It's worked very well for us. And as Lauren said, we've always been very premium mass focused, premium direct, very bottom line driven on that. The junket business has always had a very minimal amount of impact to our bottom line overall. So again, this transition is a very natural and fairly easy transition for us.
spk08: Great. Thank you so much for the call. One housekeeping item. Pro forma to the equity contribution to Studio City, does all the cash come from the Macau Resource Finance Restricted Group, or was it funded with contribution or cash from outside of the restricted groups?
spk05: So for the Studio City financing, obviously the 350 came from bond investors, and then the 300 came pro rata from the existing shareholders that represent about 99.5% of the equity ownership in Studio City.
spk08: Yes. So your share... of that pro rata contribution came from the cash that you guys discussed was on the restricted group from Melco, correct?
spk05: The contribution of the Melco equity into the Studio City private placement came from our revolving credit facility.
spk08: Great, thank you so much.
spk05: Thank you.
spk10: We have the next question coming from the line of Billy Ang from Bank of America. Please go ahead.
spk07: Thank you and good evening. A couple of questions. One is would you guys provide a bit more color what's happening in February because we saw a relatively strong Chinese New Year's And then after that, it seems like at least from the entire government data point, visitation continues to improve. So what have you seen so far in terms of Studio City and in terms of COD? What kind of color you can share?
spk09: Billy, why don't I get the beginning of that, and then David can supplement. I think in the first two months of the year, you know, it's really reinforced our hypothesis on the last call where we are in a range-bound environment. And I think the first two months have certainly proven that. And as long as the zero COVID policy is in place and visitation into Macau is limited, I think this is what we're going to see. After a good Chinese New Year period, the visitation naturally decreased. David, do you want to talk about it?
spk01: Sure. Again, Billy, this is one of those things where obviously, as you know, Chinese New Year got off to a great start for us. I thought what was great was week one. Obviously, the first seven days were very good, but the second week for us was very good as well, both in our volumes. from both our premium direct, premium mass, and mass and slot volumes. Everything worked very well for us. As you know, there's always a kind of a malaise that happens after Chinese New Year where things slow down. I think you've kind of seen that as you look at kind of the statistics from the government coming out over the last couple weeks. Additionally, we've kind of seen some flare-ups now coming through for not only Hong Kong as Omicron is, kind of taken hold over there, but we've had seen some flare-ups across the border as well into Zhuhai and around certain other areas there. So things have slowed down a little bit. I think it just kind of goes back to what Lawrence said. Our hypothesis for this year was we were going to be in a fairly range-bound thing. There's kind of other things that are going on with the Olympics that we saw happen, and certainly with some of the party meetings that are going to be coming up here this next week. So I think there's going to be other activities that are going to kind of continue to go up and down and kind of maintain that range bound thing a little bit. And unfortunately, I think we're gonna still see some flare ups down then coming back from COVID that will kind of some start and stop type of activities are gonna take place here.
spk07: Thank you. And can I ask about the Philippine situation and it seems like at least in terms of policy, things are back to normal almost completely. So should we expect GGL should follow and it will get back to pre-COVID level very quickly because if you look at other jurisdictions, even in the U.S., there's always kind of demand and gaming revenue in some places already exceed pre-COVID level. So what should we think about the Philippine market?
spk09: Hey, Jeff Andres, can you get that?
spk03: I did. Things are definitely getting better in the Philippines. We're now effective today, allowed to operate at 100% capacity, which is a fantastic feeling. Right now, just walked to the casino and we are very busy. We are also open to foreign tourism. If you're fully vaccinated, you can enter the Philippines quite easily. The challenge we have right now, though, is that our foreign tourists, with the exception of the United States, can't get back to their home country without going through quarantine. So we're still missing our customers from Japan and Korea and some other Southeast Asian countries, for example. So we're looking forward to a future easening of the quarantine restrictions for our customers to be able to return to their home country. But for right now, it really feels very good to operate on a very normal basis, and we're seeing our volumes bounce back quite nicely.
spk07: Thank you. And one last thing. As Jeff mentioned about the FedEx 1100, I just want to make sure I get it correctly. That is a credit. That is a FedEx reversal, right? So it's positive.
spk05: That's correct.
spk07: Thank you.
spk10: Thank you. We have the next question coming from the line of Praveen Chaudhary from Morgan Stanley. Please go ahead.
spk04: Thank you. Thanks very much for taking my question. Lawrence, one question for you would be, in your view, do you expect China to ease or mainland to ease the e-visa and group visa before Hong Kong opens up? Or do we need to wait for Hong Kong to normalize and we see Hong Kong mainland opening before China further relaxes. And the reason for asking this will determine how long does it take to normalize. The second question I had was interesting observation that you said Studio City will have 557 keys. Many places you have earlier used 900. Is it new change? Are you making the rooms bigger at such a late stage, or am I missing anything? Thank you.
spk09: Hey, Praveen. Why don't I take the second question first? So what I referred to in the prepared remarks was actually the W Tower, the W Tower at Studio City. For the entire Studio City Phase 2, it is close to 900 keys between W and our own self-managed hotel. that were indicatively calling Iconic Tower. So Iconic Tower would make up the difference of the 900. So it's still 900 keys at Studio City Phase 2. So I think that's on the second question. On the first one about when will Macau resume group tours and also e-visas. It's a very unique year in China. It's a very important year. Of course, we went through Olympics. And then, of course, there's the two sessions meetings happening this week, which I will be going up tomorrow. And then after that, you have the Hong Kong CE election and the 25th anniversary of the Hong Kong handover. And then, by far and away, the most important event is going to happen in October. which is the Chinese Party National Congress meeting. So again, I think the Chinese policy is going to be very conservative this year with regards to opening up its borders. And even recently, we've seen how certain provinces view Macau as being so close to Hong Kong and therefore the COVID outbreak in Hong Kong somehow would affect Macau. So I honestly, I don't have a lot of hope that group tours or e-visas are going to be normalized before the Hong Kong-China corridor, meaning the Hong Kong-Macau corridor will be open.
spk04: Thank you very much. Thanks for your comment and stay safe everyone. Congrats on good results.
spk10: Thank you. As we have no further questions, I would like to hand the conference back to Jenny Kim. Please take over.
spk00: Thank you for participating in our call today. We look forward to speaking with you next quarter. Thank you.
spk10: Thank you. Ladies and gentlemen, that concludes our conference call for today. Thank you all for your participation. You may disconnect now.
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